Improved and more sophisticated risk management in the cannabis industry warrant reduced insurance costs and more capacity, says the head of risk management at one of the cannabis industry’s best-know publicly traded companies.
Karl Long is senior director of risk management for Trulieve Cannabis Corp., a publicly traded provider in the medical and recreational cannabis and CBD products space. Long, who’s company spends millions on premiums, said he was recently prompted to thank an insurer for providing coverage.
“We are absolutely past the point where there should be punitive pricing, punitive rate schemes, and we don’t have any need to thank traditional capital markets for coming in and taking that kind of chunk of our earnings if we’re running correctly,” Long said. “And again, that’s where the operational excellence comes in. We’re a very good risk. We’re exceedingly profitable, and I can speak to line-by-line of coverage.
He made the comment during a panel discussion with Roy Bingham, CEO of cannabis data provider BDSA, and Morgan Fox, political director or NORML.
They were among more than 30 speakers appearing during Insuring Journal’s annual virtual Insuring Cannabis Summit on Oct. 26 and 27. The two-day event featured panels on cannabis laws and lawsuits, a panel with carriers, insuring cannabis market intelligence, experts tackling tough questions, and a large roundtable panel.
The panel kicked off the summit, and it offered an overview of cannabis data, politics, and cannabis risk management.
Long also gave insurance sellers tips for dealing with a buyer like him, and he explained how his firm chooses insurance partners, which starts with “identifying best in class expertise with our broker team.”
“And what I mean by that is we need bandwidth,” Long said. “We need support, whether it’s, health, safety and environmental support, whether it’s really taking our gross data and getting simple things like payroll by class, whether it’s looking at our mod and seeing the mistakes there, whether it’s bringing in a chief underwriting officer and giving us the opportunity, quite frankly, to educate that person, and have the opportunity to have that direct dialogue.”
Long added: “So, from a broker standpoint, forget the transaction, deliver value, support, expertise and bandwidth for us to improve our operation from seed to sale. It’s not rocket science.”
Bingham gave a rundown of what BDSA expects for the remainder of the year and next year.
He said 2022 is expected to end with cannabis sales of $27.1 billion, a growth at the national level of 7%. That is a slower pace than growth has been in prior years, according to Bingham.
He blamed more mature markets, mostly on the West Coast, for the slowdown. Numerous West coast markets have seen significant price erosion this year.
“So, sales volumes have maintained, though not grown very much in California, Oregon, Washington, Colorado, but prices have declined,” Bingham said. A cannabis glut in these markets could eventually filter down into the insuring cannabis business.
However, newer markets like Montana and New Mexico, contributed to the overall growth, according to Bingham.
He said the trend of softness and declines in the industry is due in part to macroeconomic factors, but the biggest driver was steep cannabis price erosion, a byproduct of excess supply in many markets.
Politics have also played a role in the cannabis industry’s health. Stocks recently surged following an announcement from the Biden Administration of a major cannabis policy change.
Fox discussed the industry and the policy change, as well as the upcoming election, which has the potential to yield five new states legalizing adult-use cannabis. Initiatives are being voted on in Arkansas, Maryland, Missouri, and North and South Dakota.
A legalization sweep would put nearly 50% of the U.S. population in a state where cannabis is legal for adults, Fox noted.
“So, while some of those states are just right on the brink, overall, the polling is looking pretty good for most of them, particularly in states like Maryland,” Fox said.
He also talked about federal legalization in the wake of Biden’s move in early October to pardon people who were convicted solely of cannabis offenses and calling on states to follow suit.
“The President gave us a very big gift in terms of being able to move legislation forward by not only providing relief for the thousands of people that will be directly impacted by federal pardons for simple possession, but also by urging state governors to begin to expedite and facilitate their own expungement of programs, of which roughly 20 states are already doing, creating better environments for regulated cannabis markets in those states,” Fox said.
He said Biden’s move may not prompt the immediate action federal legalization and decriminalization advocates want, but it calls attention to the fact that “cannabis does not belong on Schedule 1.”
The change in policy, a growing number of states legalizing cannabis, healthy and prospering businesses, better risk management practices that call for lower rates and more capacity, and a favorable political environment, all point to an industry that is becoming more legitimate in the eyes of society, the speakers agreed.
“What is legitimacy? I believe it’s conforming to a set of rules or regulations or it’s legal. If you are legal, you’re legitimate. If you conform to rules, you’re legitimate,” Long said. “Well, on both those, the answer to both those questions is a resounding clear ‘Yes.’ We are very much legitimate, and we are growing more…mainstream by the minute.”
Topics Cannabis
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